Amarillo Gold Corporation (TSXV: AGC) is a development stage company engaged in the acquisition and exploration of mineral properties, primarily in Brazil. Amarillo currently has two properties in Brazil: Mara Rosa, which is located in the State of Goiás, and Lavras do Sul, located in the State of Rio Grande do Sul. The Group is in the process of exploring and developing its resource properties

Mara Rosa Property in Goiás State is the group’s flagship assets. It includes Posse Gold Project (Posse), which is in the development stage. Posse has total reserves of 1,087,000 gold ounces from 23.8 million tonnes at 1.42 g/t gold:

• Proven reserves – 513,000 ounces from 9.6 million tonnes grading 1.65 g/t gold
• Probable reserves – 574,000 ounces from 14.2 million tonnes grading 1.46 g/t gold.

The group has recently released the results of a positive definitive feasibility study (FS) for the above project. The study suggests that the mine will be having an estimated life of 10 years. The mine is likely to generate an average annual gold production of 84,000 ounces in first four years.

A feasibility study on the Posse Gold Project is nearly complete, and the results will be released before the end of the second quarter of 2020.

Q1FY20 Financial Highlights: For the period ended March 31, 2020, Amarillo posted a total comprehensive loss of CAD 0.54 million, as compared to CAD 0.62 million in the previous corresponding quarter. General and administrative expense stood higher at CAD 0.64 million, as compared to CAD 0.59 million in Q1FY19. The quarter saw the inclusion of financing advisory service expense amounting to CAD 0.04 million while Interest and finance charges were significantly higher at CAD 0.02 million, as compared to CAD 0.001 million in pcp. The company exited the quarter with a cash balance of CAD 5.10 million and with total assets amounting to CAD 39.57 million. The Company is yet to earn any revenue from its operations.

Q1FY20 Income Statement Highlights (Source: Company Reports)

Stock Recommendations: The Company is an exploration stage company and has completed an important milestone in the development of its flagship Posse Gold Project. The group is expecting to receive the license to install in the third quarter of 2020 and likely to complete the construction financing by the time license is issued. The group is targeting to break ground in April 2021. However, the Company is about to commence its construction activities for the Posse Gold Project, and we believe its too early to take a call on the result of the project. Investors should note that the stock is trading above its 100-days and 200-days simple moving average (SMA) of CAD 0.19 and CAD 0.20, indicating a long-term bullish trend. The stock price rose ~44% so far this year and currently trading near to its 52-week high of CAD 0.285. The stock is trading at a Price to book multiple of 1.2x on a TTM basis, which is in line with the industry (metals and mining) average multiple of 1.3x. We believe that all the positives are priced in at current trading levels; hence we look for a better entry point. Based on the aforementioned facts, we recommend a ‘Watch’ stance on the stock at the closing market price of CAD 0.23 as on June 10, 2020.

AGC Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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